LSI Reports Second Quarter 2012 Results

Revenues grow 6% quarter over quarter; company sees continued strong demand for flash-based products

News provided by

LSI Corporation

Jul 25, 2012, 04:01 ET

MILPITAS, Calif., July 25, 2012 /PRNewswire/ -- LSI Corporation (NYSE: LSI) today reported results for its second quarter ended July 1, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120222/SF57952LOGO)

Second Quarter 2012 Highlights

  • Second quarter 2012 revenues from continuing operations* of $660 million
  • Second quarter 2012 GAAP** income from continuing operations of $0.10 per diluted share
  • Second quarter 2012 non-GAAP*** income from continuing operations of $0.21 per diluted share
  • Second quarter 2012 operating cash flows of $117 million

 Third Quarter 2012 Business Outlook

  • Projected revenues from continuing operations* of $620 million to $660 million
  • GAAP** income from continuing operations in the range of $0.02 to $0.11 per share
  • Non-GAAP*** income from continuing operations in the range of $0.14 to $0.20 per share

*

On May 6, 2011, LSI completed the sale of its external storage systems business. The financial results of the external storage systems business have been classified as discontinued operations in LSI's financial statements. Our ongoing business is referred to as "continuing operations."

**

Generally Accepted Accounting Principles.

***

Excludes stock-based compensation, amortization of acquisition-related intangibles, purchase accounting effect on inventory, restructuring of operations and other items, net, gain on remeasurement of a pre-acquisition equity interest to fair value, gain/loss on sale/write-down of investments and, in the case of non-GAAP net income, gain from the sale of the external storage systems business. It also excludes the income tax effect associated with the above-mentioned items.

"We are pleased with our performance in the second quarter as we delivered strong growth and further expanded our profitability in a challenging macroeconomic environment," said Abhi Talwalkar, LSI's president and CEO. "Demand, particularly for our flash-related products, was driven by rapid adoption across client and datacenter computing where customers are increasingly turning to LSI to enhance or accelerate application performance."

Second quarter 2012 revenues from continuing operations were $660 million, in line with guidance, compared to $501 million generated from continuing operations in the second quarter of 2011, and compared to $622 million generated from continuing operations in the first quarter of 2012.

Second quarter 2012 GAAP** income from continuing operations was $59 million or $0.10 per diluted share, compared to second quarter 2011 GAAP income from continuing operations of $28 million or $0.05 per diluted share. First quarter 2012 GAAP income from continuing operations was $75 million or $0.13 per diluted share. Second quarter 2012 GAAP income from continuing operations included a net charge of $62 million from special items, consisting primarily of approximately $26 million of stock-based compensation expense, $30 million of amortization of acquisition-related items and $6 million of net restructuring and other items.

Second quarter 2012 non-GAAP*** income from continuing operations was $121 million or $0.21 per diluted share, compared to second quarter 2011 non-GAAP income from continuing operations of $60 million or $0.10 per diluted share. First quarter 2012 non-GAAP income from continuing operations was $117 million or $0.20 per diluted share.

Cash and short-term investments totaled approximately $601 million at quarter end. The company completed second-quarter purchases of approximately 18 million shares of its common stock for approximately $138 million. On a cumulative basis, LSI has repurchased a total of 95 million shares and utilized approximately $675 million of the company's current $750 million share repurchase program.

"We are making good progress toward our business model targets with strong year over year growth in sales and operating profits," said Bryon Look, LSI's chief financial officer. "We are generating solid operating cash flows and with our share buyback program we continue to return capital to our shareholders."

LSI 3Q2012 Business Outlook for Continuing Operations

GAAP**

Special Items

Non-GAAP***

Revenue

$620 million to $660 million

$620 million to $660 million

Gross Margin

47% – 51%

$20 million to $30 million

52% – 54%

Operating Expenses

$258 million to $278 million

$30 million to $40 million

$228 million to $238 million

Net Other Income

$3 million

$3 million

Tax

Approximately $12 million

Approximately $12 million

(Loss)/Income from Continuing Operations Per Share

$0.02 to $0.11

($0.09) to ($0.12)

$0.14 to $0.20

Diluted Share Count

570 million

570 million

Capital spending is projected to be around $25 million in the third quarter and approximately $130 million in total for 2012.

Depreciation and software amortization is projected to be around $15 million in the third quarter and approximately $60 million in total for 2012.

LSI Conference Call Information

LSI will hold a conference call today at 2 p.m. PDT to discuss second quarter 2012 financial results and the third quarter 2012 business outlook. Internet users can access the conference call at http://www.lsi.com/webcast. Subsequent to the conference call, a replay will be available at the same web address.

Forward-Looking Statements: This news release contains forward-looking statements that are based on the current opinions and estimates of management. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could cause LSI's actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to: our ability to successfully integrate and manage the SandForce business and retain its key employees; our ability to achieve anticipated synergies and to develop integrated new products following our acquisition of SandForce; our ability to repurchase our common stock at prices we believe to be advantageous; our reliance on major customers and suppliers; our ability to keep up with rapid technological change; our ability to compete successfully in competitive markets; fluctuations in the timing and volumes of customer demand; the unavailability of appropriate levels of manufacturing capacity; and general industry and macro-economic conditions. For additional information, see the documents filed by LSI with the Securities and Exchange Commission, and specifically the risk factors set forth in the company's most recent reports on Form 10-K and 10-Q. LSI disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

About LSI

LSI Corporation (NYSE: LSI) designs semiconductors and software that accelerate storage and networking in datacenters, mobile networks and client computing. Our technology is the intelligence critical to enhanced application performance, and is applied in solutions created in collaboration with our partners. More information is available at www.lsi.com.

LSI, the LSI & Design logo and the Storage.Networking.Accelerated. tagline are trademarks or registered trademarks of LSI Corporation.

All other brand or product names may be trademarks or registered trademarks of their respective companies.

LSI CORPORATION

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)





























July 1,

April 1,

December 31,

Assets


2012

2012

2011







Current assets:






    Cash and short-term investments

$    601.1

$    623.1

$           935.5

    Accounts receivable, net

296.8

302.1

246.5

    Inventories

204.0

200.8

180.0

    Prepaid expenses and other current assets

63.4

62.4

60.7







        Total current assets

1,165.3

1,188.4

1,422.7







Property and equipment, net

235.7

235.1

180.6

Goodwill and identified intangible assets, net

802.0

832.0

506.2

Other assets

107.6

111.6

122.6







        Total assets

$ 2,310.6

$ 2,367.1

$        2,232.1
















Liabilities and Stockholders' Equity














Current liabilities

$    468.4

$    470.3

$           460.9







Pension, tax and other liabilities

678.8

693.5

712.2







        Total liabilities

1,147.2

1,163.8

1,173.1







Stockholders' equity:






    Common stock and additional paid-in capital

5,594.5

5,691.4

5,629.2

    Accumulated deficit

(3,903.1)

(3,961.8)

(4,037.0)

    Accumulated other comprehensive loss

(528.0)

(526.3)

(533.2)







        Total stockholders' equity

1,163.4

1,203.3

1,059.0







        Total liabilities and stockholders' equity

$ 2,310.6

$ 2,367.1

$        2,232.1

LSI CORPORATION

Consolidated Statements of Operations (GAAP)

(In thousands, except per share amounts)

(Unaudited)









Three Months Ended

Six Months Ended

July 1,

April 1,

July 3,

July 1,

July 3,

2012

2012

2011

2012

2011








Revenues

$      659,573

$      622,424

$      500,644

$       1,281,997

$      973,908








    Cost of revenues

303,334

296,152

240,692

599,486

466,151

    Amortization of acquisition-related intangibles

21,348

21,390

20,281

42,738

42,099

    Purchase accounting effect on inventory

-

14,458

-

14,458

-

    Stock-based compensation expense

3,003

3,512

2,051

6,515

3,864

       Total cost of revenues

327,685

335,512

263,024

663,197

512,114








Gross profit 

331,888

286,912

237,620

618,800

461,794








    Research and development

163,591

157,563

139,220

321,154

275,344

    Stock-based compensation expense

11,973

12,308

6,653

24,281

12,876

       Total research and development

175,564

169,871

145,873

345,435

288,220








    Selling, general and administrative

69,905

66,419

58,526

136,324

113,443

    Amortization of acquisition-related intangibles

8,667

8,667

8,319

17,334

16,638

    Stock-based compensation expense

10,342

15,014

4,948

25,356

10,579

       Total selling, general and administrative

88,914

90,100

71,793

179,014

140,660








    Restructuring of operations and other items, net

6,491

15,462

(10,904)

21,953

(8,098)








Income from operations

60,919

11,479

30,858

72,398

41,012








    Interest income and other, net

9,594

14,656

6,450

24,250

10,738








Income from continuing operations before income taxes 

70,513

26,135

37,308

96,648

51,750

Provision for/(benefit from) income taxes 

11,800

(49,062)

8,900

(37,262)

4,796








Income from continuing operations

58,713

75,197

28,408

133,910

46,954








Income from discontinued operations, net of taxes 

-

-

265,376

-

256,984








Net income

$        58,713

$        75,197

$      293,784

$          133,910

$      303,938








Basic income per share:








    Income from continuing operations 

$            0.10

$            0.13

$            0.05

$                0.24

$            0.08

    Income from discontinued operations 

$                  -

$                  -

$            0.44

$                      -

$            0.42

    Net income

$            0.10

$            0.13

$            0.49

$                0.24

$            0.50








Diluted income per share:








    Income from continuing operations 

$            0.10

$            0.13

$            0.05

$                0.23

$            0.08

    Income from discontinued operations 

$                  -

$                  -

$            0.43

$                      -

$            0.41

    Net income

$            0.10

$            0.13

$            0.48

$                0.23

$            0.49








Shares used in computing per share amounts:








    Basic

563,686

566,709

594,957

564,945

605,315








    Diluted

581,344

590,556

611,093

586,431

621,248








Reconciliations of certain GAAP measures to non-GAAP measures are included below.



















Three Months Ended

Six Months Ended

Reconciliation of GAAP net income to non-GAAP net income:

July 1,

2012

April 1,

2012

July 3,

2011

July 1,

2012

July 3,

2011








GAAP income from continuing operations

$        58,713

$        75,197

$        28,408

$          133,910

$        46,954








Special items:








a)   Stock-based compensation expense - cost of revenues

3,003

3,512

2,051

6,515

3,864

b)   Stock-based compensation expense - R&D

11,973

12,308

6,653

24,281

12,876

c)   Stock-based compensation expense - SG&A

10,342

15,014

4,948

25,356

10,579

d)   Amortization of acquisition-related intangibles - cost of revenues  

21,348

21,390

-

20,281

42,738

42,099

e)   Amortization of acquisition-related intangibles - SG&A

8,667

8,667

8,319

17,334

16,638

f)   Purchase accounting effect on inventory

-

14,458

-

14,458

-

g)   Restructuring of operations and other items, net

6,491

15,462

(10,904)

21,953

(8,098)

h)   Gain on re-measurement of a pre-acquisition equity interest to fair value

-

(5,765)

-

(5,765)

-

i)   Income tax effect

-

(43,198)

-

(43,198)

-

     Total special items from continuing operations

61,824

41,848

31,348

103,672

77,958








Non-GAAP income from continuing operations

$      120,537

$      117,045

$        59,756

$          237,582

$      124,912








Non-GAAP income from continuing operations per share: 








    Basic

$            0.21

$            0.21

$            0.10

$                0.42

$            0.21








    Diluted 

$            0.21

$            0.20

$            0.10

$                0.41

$            0.20








GAAP net income

$        58,713

$        75,197

$      293,784

$          133,910

$      303,938








Special items:








a)   Total special items from continuing operations

61,824

41,848

31,348

103,672

77,958

b)   Stock-based compensation expense - discontinued operations

-

-

(526)

-

(207)

c)   Amortization of acquisition-related intangibles - discontinued operations

-

-

-

-

886

d)   Restructuring of operations - discontinued operations

-

-

14,079

-

37,890

e)   Gain on sale of business

-

-

(260,066)

-

(260,066)








Non-GAAP net income

$      120,537

$      117,045

$        78,619

$          237,582

$      160,399








Non-GAAP net income per share:








    Basic

$            0.21

$            0.21

$            0.13

$                0.42

$            0.26








    Diluted 

$            0.21

$            0.20

$            0.13

$                0.41

$            0.26








Shares used in computing non-GAAP per share amounts:








    Basic

563,686

566,709

594,957

564,945

605,315








    Diluted

581,344

590,556

611,093

586,431

621,248

LSI CORPORATION

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)









Three Months Ended

Six Months Ended

July 1,

April 1,

July 3,

July 1,

July 3,

2012

2012

2011

2012

2011

Operating activities:








Net income

$   58,713

$   75,197

$ 293,784

$ 133,910

$ 303,938

Adjustments:








    Depreciation and amortization 

45,279

45,368

46,303

90,647

102,310

    Stock-based compensation expense

25,318

30,834

13,126

56,152

27,112

    Non-cash restructuring of operations and other items, net

2,901

2,140

10,140

5,041

20,964

    Gain on re-measurement of a pre-acquisition equity interest to fair value

-

(5,765)

-

(5,765)

-

    Gain on sale of business

-

-

(260,066)

-

(260,066)

    (Gain)/loss on sale of property and equipment

(95)

25

(269)

(70)

(508)

    Unrealized foreign exchange (gain)/loss

(4,196)

1,461

1,202

(2,735)

2,581

    Deferred taxes 

28

(43,202)

(19,723)

(43,174)

(19,766)

    Changes in assets and liabilities, net of assets acquired and liabilities 








        assumed in business combination:








        Accounts receivable

5,428

(44,845)

52,006

(39,417)

92,477

        Inventories

(3,226)

3,453

(30,489)

227

(43,140)

        Prepaid expenses, assets held for sale and other assets

460

(2,290)

(9,925)

(1,830)

(10,991)

        Accounts payable

(17,598)

47,119

(14,983)

29,521

9,290

        Accrued and other liabilities

4,260

(59,270)

(42,812)

(55,010)

(77,878)

Net cash provided by operating activities

117,272

50,225

38,294

167,497

146,323








Investing activities:








    Purchases of debt securities available-for-sale

(51,106)

(21,263)

(8,601)

(72,369)

(24,131)

    Proceeds from maturities and sales of debt securities available-for-sale 

8,250

9,506

10,487

17,756

23,445

    Purchases of other investments

-

-

(4,000)

-

(4,000)

    Purchases of property and equipment

(12,636)

(64,982)

(15,656)

(77,618)

(37,198)

    Proceeds from sale of property and equipment

231

21

586

252

896

    Acquisition of SandForce, net of cash acquired 

-

(319,231)

-

(319,231)

-

    Proceeds from sale of business, net of transaction costs 

-

-

475,150

-

475,150

Net cash (used in)/provided by investing activities

(55,261)

(395,949)

457,966

(451,210)

434,162








Financing activities:








   Issuance of common stock

16,854

65,274

33,612

82,128

50,931

   Purchases of common stock under repurchase program

(137,979)

(38,206)

(300,001)

(176,185)

(396,792)

Net cash (used in)/provided by financing activities

(121,125)

27,068

(266,389)

(94,057)

(345,861)








Effect of exchange rate changes on cash and cash equivalents

598

(495)

(957)

103

(968)








Net change in cash and cash equivalents

(58,516)

(319,151)

228,914

(377,667)

233,656








Cash and cash equivalents at beginning of period

460,660

779,811

526,528

779,811

521,786








Cash and cash equivalents at end of period

$ 402,144

$ 460,660

$ 755,442

$ 402,144

$ 755,442

SOURCE LSI Corporation